EUR/USD: Small Move Likely?

The forex market on the daily chart is turning down from the Jan. 22 lower high. The bears hope that the lower high will be the 1st in a series of lower highs, and the start of a bear trend. They see that lower high as the right shoulder of a head and shoulders top, and a lower high major trend reversal. If they get a couple closes below the Jan. 1 low, which is the neckline, traders will look for a measured move down to the Nov. 4 low of 1.6.

EUR/USD Daily

Most tops and bottoms are trading ranges, which mean they are Breakout Mode pattern. This is another example. Every trading range also has a credible buy pattern. Traders see the head and shoulders top as a triangle bull flag. The bulls need a strong break above the Jan. 22 lower high and then a couple closes above the Jan. 6 high, before traders will conclude that the bull trend is resuming.

What is most likely? Trading ranges resist change. Until there is a convincing breakout up or down, traders will continue to look for reversals. Even though at the moment the bears have slightly higher probability of a successful bear breakout, until there is a breakout, there is no breakout. The odds of a reversal are always higher than of a successful breakout.

Overnight EUR/USD Forex trading

The 5-minute chart of the EUR/USD forex market sold off sharply over night, but it has been sideways in a tight range for 2 hours. Day traders have only been making money selling. However, now that the range is so tight, even scalpers are having a hard time making even 10 pips.

Because there is a trading range and the EUR/USD is near the support of the bottom of its 2-month trading range, the bulls are willing to buy. But the bears will continue to sell rallies, hoping for a resumption of the bear trend.

A trading range is a Breakout Mode pattern. Many traders are trading reversals, hoping for a surprisingly strong move up or down. However, they have been scalping out when they quickly become disappointed by the lack of a strong breakout.

Can today have either a strong bear breakout below the 2-month range, or a strong reversal up? A tight trading range after a sell climax usually will lead either to at least a small resumption down, or a small reversal up. A relative small move on the 5-minute chart today is more likely than a big trend, especially since the EUR/USD has been sideways for 3 weeks with mostly small days.

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